COMMENT-War chests may be inadequate to defend Asian currencies

War chests may be woefully inadequate to defend Asian currencies which have fallen to points suggesting much deeper drops, some to record lows and beyond.

Even with massive FX reserves the defence of a falling currency is a difficult business if the drop is warranted by fundamental and technical factors.

That is currently the case for most of the Asian currencies that have slumped while much higher U.S. interest rates are supporting the dollar.

Demand from central banks which want to maintain large reserves that can be used to defend currencies during a crisis is exacerbating the greenback's rise, and is one of the reasons why India's rupee and China's yuan have fallen towards record lows versus the dollar.

Outlooks for Malaysia's ringgit and Indonesia's rupiah are more concerning because, unlike China and India, the FX reserves of Malaysia and Indonesia are much smaller at $101 billion and $125 billion. Even Thailand's $200 billion stockpile of foreign cash may be too small.

India spent over $100 billion trying to support the rupee before helping to drive to it to a record low while replenishing reserves.

The rupiah and ringgit, which look set to drop to record lows, may need and get support from their central banks, but that may prove insufficient.

If Thailand cuts its interest rate as is widely expected, the resulting drop for the baht could be significant.

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